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Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Earnings Before Income Tax Expense
years ended December 31 (in millions)202420232022
Domestic$(7,743)$(3,475)$(4,608)
Foreign11,459 9,725 18,085 
Total earnings before income tax expense$3,716 $6,250 $13,477 
Income Tax Expense
years ended December 31 (in millions)202420232022
Current
Domestic$(331)$3,272 $2,647 
Foreign1,210 994 916 
Total current taxes$879 $4,266 $3,563 
Deferred
Domestic$(1,303)$(2,324)$(1,512)
Foreign(146)(565)(419)
Total deferred taxes$(1,449)$(2,889)$(1,931)
Total income tax expense (benefit)$(570)$1,377 $1,632 
Effective Tax Rate Reconciliation
years ended December 31
202420232022
Statutory tax rate21.0 %21.0 %21.0 %
Effect of foreign operations7.6 8.0 (4.4)
U.S. tax credits(5.4)(3.1)(2.8)
Stock-based compensation (1.2)(1.0)(0.6)
Non-deductible expenses1.1 0.7 0.4 
Tax law changes and related structuring(0.3)(3.8)(2.4)
Tax audits, settlements and reserves(51.4)(1.1)0.9 
Acquisition costs13.4 0.2 — 
All other, net(0.1)1.1 — 
Effective tax rate(15.3)%22.0 %12.1 %
The effective income tax rate fluctuates year to year due to the allocation of the company’s taxable earnings among jurisdictions, as well as certain discrete factors and events in each year, including changes in tax law and business development activities. The effective income tax rates in 2024, 2023 and 2022 differed from the statutory tax rate principally due to the impact of foreign operations with lower income tax rates in locations outside the United States, the U.S. global minimum tax, changes in fair value of contingent consideration, tax audits and settlements, tax credits and incentives in the United States, Puerto Rico and other foreign tax jurisdictions, and business development activities. The effective income tax rate in 2024 was lower than prior periods due to the resolutions of various tax positions pertaining to multiple prior tax years, including the closing of U.S. IRS examinations covering three tax years, partially offset by increases in unrecognized tax benefits pertaining to prior years. The lower effective income tax rate in 2024 also reflects an increase due to acquisition costs related to certain business development activities and a decrease related to changes in fair value of contingent consideration. The effective income tax rate in 2023 was higher than prior periods due to increased changes in fair value of contingent consideration, intangible asset impairments and the impacts of the transition from the Puerto Rico excise tax to an income tax.
In 2022, Puerto Rico enacted Act 52-2022 (the Puerto Rico Act) allowing for a transition from a Puerto Rico excise tax levied on gross inventory purchases to an income-based tax beginning in 2023. The company completed the transition requirements of the Puerto Rico Act in 2022, resulting in the remeasurement of certain deferred tax assets and liabilities
based on income tax rates at which they are expected to reverse in the future. The net tax benefit recognized in 2022 from the remeasurement of deferred taxes related to the Puerto Rico Act was $323 million.
The Tax Cuts and Jobs Act (the Act) was signed into law in December 2017, resulting in significant changes to the U.S. corporate tax system, including a one-time transition tax on a mandatory deemed repatriation of earnings of certain foreign subsidiaries that were previously untaxed. The Act also created a U.S. global minimum tax on certain foreign sourced earnings. The company’s accounting policy for the minimum tax on foreign sourced earnings is to report the tax effects on the basis that the minimum tax will be recognized in tax expense in the year it is incurred as a period expense.
Deferred Tax Assets and Liabilities
as of December 31 (in millions)20242023
Deferred tax assets
Compensation and employee benefits$215 $519 
Accruals and reserves1,253 1,113 
Chargebacks and rebates1,354 1,431 
Advance payments66 298 
Net operating losses and other carryforwards15,815 14,316 
Other2,156 2,259 
Total deferred tax assets20,859 19,936 
Valuation allowances(14,823)(13,478)
Total net deferred tax assets6,036 6,458 
Deferred tax liabilities
Excess of book basis over tax basis of intangible assets(1,969)(1,535)
Excess of book basis over tax basis in investments(302)(374)
Other(718)(746)
Total deferred tax liabilities(2,989)(2,655)
Net deferred tax assets
$3,047 $3,803 
The decrease in deferred tax assets is primarily related to a decrease in compensation, employee benefits and advance payments. The increase in deferred tax liabilities is primarily due to the acquisition of Cerevel Therapeutics and ImmunoGen in which the company recorded the excess of book basis over tax basis of intangible assets, offset by amortization and impairment of intangible assets.
The company had valuation allowances of $14.8 billion as of December 31, 2024 and $13.5 billion as of December 31, 2023. These were principally related to foreign and state net operating losses and other credit carryforwards that are not expected to be realized.
The company incurred carryforward deductions in a foreign jurisdiction where realization of the future income tax benefit was, in previous reporting periods, considered so remote that the income tax benefit was not recognized as a deferred tax asset. In 2024, the company concluded that the future income tax benefit of the carryforward balances is no longer remote and therefore, a deferred tax asset was recognized. The company also recognized an offsetting valuation allowance, resulting in no net impact to deferred tax assets as such carryforward balances are not expected to be realized in the foreseeable future.
As of December 31, 2024, the company had U.S. federal, state and foreign credit carryforwards of $669 million as well as U.S. federal, state and foreign net operating loss carryforwards of $38.9 billion, which will expire at various times through 2044. The company also had foreign loss carryforwards of $33.3 billion that have no expiration.
Unremitted foreign earnings subject to the Act’s transition tax are not considered indefinitely reinvested. Post-2017 earnings subject to the U.S. minimum tax on foreign sourced earnings or eligible for the 100 percent foreign dividends received deduction are also not considered indefinitely reinvested earnings. However, the company generally considers instances of outside basis differences in foreign subsidiaries that would incur additional U.S. tax upon reversal (e.g., capital gain distributions) to be permanent in duration. The unrecognized tax liability is not practicable to determine.
Unrecognized Tax Benefits
years ended December 31 (in millions)202420232022
Beginning balance$5,762 $5,670 $5,489 
Increase due to current year tax positions173 129 88 
Increase due to prior year tax positions454 109 243 
Decrease due to prior year tax positions(1,741)(21)(33)
Settlements(284)(86)(7)
Increase due to acquisitions82 — — 
Lapse of statutes of limitations(45)(39)(110)
Ending balance$4,401 $5,762 $5,670 
If recognized, the net amount of potential tax benefits that would impact the company's effective tax rate is $4.3 billion in 2024 and $5.6 billion in 2023. The "Increase due to current year tax positions" and "Increase due to prior year tax positions" in the table above include amounts related to federal, state and international tax items.
AbbVie recognizes interest and penalties related to income tax matters in income tax expense in the consolidated statements of earnings. AbbVie recognized a gross income tax benefit of $179 million in 2024 and gross income tax expense of $430 million in 2023 and $339 million in 2022 for interest and penalties related to income tax matters. AbbVie had an accrual for the payment of gross interest and penalties of $1.4 billion at December 31, 2024, $1.6 billion at December 31, 2023 and $1.1 billion at December 31, 2022.
The company is routinely audited by the tax authorities in significant jurisdictions and a number of audits are currently underway. It is reasonably possible that the company’s gross unrecognized tax benefits balance may change within the next 12 months by up to $40 million in connection with statute of limitation expirations. The company has various federal, state and foreign examinations ongoing. Finalizing examinations with the relevant taxing authorities can include formal administrative and legal proceedings, and as a result, we cannot reasonably estimate the timing of resolution for certain unrecognized tax benefits. All significant federal, state and international tax matters have been concluded for years before 2009. The company believes adequate provision has been made for all income tax uncertainties.